Homeowners with an eye to sell their home may be hearing words like walkability. But…
Being a first-time home buyer can be a confusing process, even after you’ve closed on your new house and have been living there for a little while. You’ve probably heard the term ‘refinance’ thrown around in the real estate and mortgage world. The process of refinancing involves paying off an existing loan and replacing it with a new one. The goal is to save money in the long run.
Reasons for Refinancing
There are a number of reasons why you might consider refinancing your current mortgage loan. This includes:
-Securing a lower interest rates if they’re more competitive now
-To shorten your mortgage term
-To utilize your home’s equity to address a financial emergency
-To consolidate debt
-To change between a fixed-rate mortgage and an adjustable-rate mortgage
The Refinancing Process
Refinancing your current mortgage can cost you anywhere from three to six percent of your loan’s current principal. The process includes a new appraisal, title search and a host of application / attorney fees. There are a number of reasons why you might decide to refinance. This includes:
Competitive Interest Rates
If interest rates have dropped substantially recently, now may be the perfect time to refinance. These rates can change pretty dramatically over the course of ten, twenty or thirty years. The rate that you initially signed up for could be a lot higher than what’s available at this point in time. Refinancing might cost a little bit of money up front, but you’ll save a tremendous amount of money for the remainder of your mortgage when the rate drops.
When You Need Emergency Income
If you’ve been living in your home for at least a few years, then you have some equity in your home. If you encounter an emergency of some sort that’s going to require a large amount of funds that you don’t currently have saved in the bank, you can tap into this equity by refinancing. Just be careful with this process. You can sometimes make your financial situation worse if you’re not sure of how you’re structuring your finances.
Shortening the Term of Your Loan
Refinancing your mortgage not only changes the interest rate in many cases, but you can also use this process to shorten the term of your loan. Your lender can work closely with you to reduce the number of years that are left on your mortgage while not having to change your monthly payment amount very much. You’ll continue to pay the same amount that you have been, but you’ll be debt free sooner than later. Of course, this usually relies on a change in interest rate. If you can drop your interest rate by about five percent, this can cut your mortgage time in half.
Changing From an Adjustable-Rate Mortgage to a Fixed-Rate Mortgage (Or Vice Versa)
An adjustable-rate mortgage usually has a lower interest rate than a fixed-rate option, but adjustments can end up increasing these rates higher and higher until your rate is higher than what’s being offered for a fixed-rate mortgage. You can change the type of mortgage that you have in order to lower your rate and eliminate any worries about future changes in your rate.
You can also choose to change from a fixed-rate loan to an adjustable-rate mortgage. ARM’s usually have lower monthly payments. They’re ideal for people who aren’t staying in their home long term or when interest rates are decreasing.
Consolidating Your Debt
Refinancing can be used to consolidate any debt that you currently have. Replacing your high-interest debt with a mortgage that has a lower interest rate can save you money. It’s important that you realize your financial mistakes and take the necessary steps to prevent this from happening again. The goal is to eliminate debt while preventing new debt from occurring.
If you’re strongly considering refinancing your current mortgage, make sure that you’re going to be staying in your current home for at least a few more years. The cost of refinancing will take you that amount of time to make up.
Speak to a trusted lender about the process of refinancing. As a first-time homebuyer, there is probably a lot about this process that you don’t know. Take a close look at your financial situation and determine if this is a wise move. You can always revisit the idea later on if now isn’t the right time.